Investment Commentary - October 2026

October was a difficult month for global equity markets, although the headline returns concealed a significant divergence in performance beneath the surface. Growing concerns over the scale of investment in artificial intelligence (AI), and whether the substantial capital being committed to data centres and related infrastructure will ultimately generate sufficient returns, weighed heavily on technology stocks. This was compounded by renewed geopolitical tensions in the Middle East, which pushed energy prices higher, and renewed concerns over the fiscal position in France. Against this backdrop, investors increasingly favoured defensive areas of the equity market and higher-quality government bonds, which provided a useful reminder of the benefits of diversification across asset classes.

 

The US equity market was particularly affected by the weakness in its largest technology companies. The S&P 500 fell 0.9%, while the more technology-focused Nasdaq declined by 5.3%, its weakest monthly performance since March 2025. The scale of the difference between the headline index and the broader market was notable: the equal-weighted S&P 500 rose by 5.0%, suggesting that the weakness was concentrated among a relatively small number of the largest constituents rather than reflecting a broad deterioration in corporate performance. Investors became increasingly concerned about the returns available from the enormous sums being spent on AI infrastructure, with several high-profile technology companies coming under pressure. Alphabet and Meta both fell by around 19% and 15% respectively, while the Philadelphia Semiconductor Index declined by 15.3%. Software stocks proved more resilient, highlighting the uneven nature of the technology sell-off.

 

European equities were more resilient overall, although performance varied considerably between countries. The STOXX 600 gained 2.0%, with Germany’s DAX rising by 2.5%, while the FTSE 100 advanced by 1.3%. UK equities benefited from their greater exposure to energy and defensive sectors, which performed well as investors reduced exposure to more expensive growth stocks. In contrast, European financials struggled, with the STOXX 600 Banks index falling by 10.3%. France remained a particular source of concern as political uncertainty and the country’s deteriorating fiscal position continued to weigh on sentiment.

 

Emerging markets experienced a much more difficult period, with the MSCI Emerging Markets index falling by 8.0%. The weakness was particularly pronounced in Asia, where technology-heavy markets were exposed to the same concerns surrounding AI investment and growing competition from Chinese technology companies. Korea’s KOSPI fell by 16.2%, while Japan’s Nikkei declined by 5.2%. Chinese equities also struggled, with the Shanghai Composite losing 6.1%, as weak domestic demand and concerns about the global technology sector offset stronger third-quarter economic growth. Latin American markets were also affected by political developments in Brazil, where the unexpected re-election of President Lula prompted a sharp reversal in equity prices. The Bovespa fell by 9.9% in local currency terms.

 

In fixed income markets, government bonds staged a strong recovery following the sharp rise in yields during the third quarter. US Treasuries returned 2.3%, their strongest monthly performance of the year, while German Bunds gained 1.9% and UK gilts rose by 1.7%. The rally was particularly notable given that bond yields initially moved higher as resilient economic data and rising energy prices fuelled concerns about inflation. The US 10-year Treasury yield reached 5.31% early in October, its highest level since 2002, before falling back to 4.93% by month-end. A deterioration in equity market sentiment, together with central bank decisions to leave interest rates unchanged, helped restore the traditional safe-haven appeal of government bonds.

 

France was the notable exception to the broader improvement in sovereign debt markets. Persistent budget deficits, a rising debt burden and political uncertainty continued to undermine investor confidence, with the spread between French and German 10-year yields reaching 174 basis points at one point during the month, its widest level since the European sovereign debt crisis in 2011. French government bonds consequently fell by 0.2%, while the wider eurozone sovereign market gained 1.0%. In the UK, the Autumn Budget attracted considerable attention, although the Chancellor’s reaffirmation of the government’s fiscal rules and the absence of major surprises meant that the market reaction was relatively muted.

 

Corporate bond markets also benefited from the recovery in government bonds, although lower-quality credit was less resilient. US investment grade corporate bonds gained 1.9%, while global investment grade credit returned 1.3%. Emerging market debt also recovered modestly. High-yield markets were more mixed, with US high yield gaining 0.4%, but euro high yield falling by 1.1%. The weakness in European credit reflected concerns about France, while the growing scrutiny of highly leveraged companies involved in the AI infrastructure buildout highlighted the risks associated with financing large capital expenditure programmes through debt.

 

Commodities were dominated by the sharp rise in energy prices. Brent crude advanced by 13.6% to finish the month at approximately $118 per barrel, taking its gain since the beginning of the year to more than 90%. West Texas Intermediate rose by 15.2%. Renewed tensions in the Middle East, disruption to shipping routes and concerns about a possible escalation between the US and Iran contributed to the increase. European natural gas prices also rose sharply, gaining 43.6% to exceed €100/MWh for the first time since the 2022 energy crisis. In contrast, precious metals had a particularly poor month. Gold fell by 6.8%, while silver declined by 18.7%, reversing some of the strong gains seen earlier in the year. Copper also weakened, falling by 2.1%.

 

In currency markets, the US dollar strengthened modestly, with the Dollar Index gaining 0.4%. The euro was weaker, falling by 1.5% against the dollar, reflecting concerns about the political and fiscal situation in France and the wider implications for European assets. Sterling performed better, rising by 0.9% against the US dollar, while the yen was broadly unchanged. Emerging market currencies came under pressure, with the emerging market currency index declining by 1.5%, reflecting the weaker performance of emerging market equities and the impact of higher energy prices.